Al2O3-SiC-ZrO2 composites were investigated to obtain a better understanding of the effect of SiC particles and the stress-induced transformation of Y-TZP on its mechanical properties. The Al2O3-SiC-ZrO2 composites were fabricated by hot pressing using gamma-Al2O3, SiC and ZrO2 mixtures. Fracture toughness and strength of Al2O3 were greatly improved by incorporating SiC and ZrO2 particles which were located mainly inside and between Al2O3 grains, respectively. The toughening and strengthening mechanism of these composites and the phase stability of the tetragonal ZrO2 in the composites before and after high-temperature annealing were investigated by scanning electron microscopy, transmission electron microscopy and X-ray diffraction. It was observed that there is a critical volume fraction of zirconia, above which the phase stability of the tetragonal zirconia increases, despite the grain growth of the zirconia. It is considered that another phenomenon, the residual stresses, affect the phase stability of the tetragonal zirconia. To remove the residual stresses the composites were annealed at 1100-degrees-C. After slow cooling, the tetragonal zirconia became very unstable, especially in samples with the highest fabrication temperature and increasing zirconia content. Even quenching from 1100-degrees-C caused an increase in the monoclinic phase of these samples.